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Politics : Don't Blame Me, I Voted For Kerry
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To: Bearcatbob who wrote (29855)6/9/2004 7:33:31 PM
From: CalculatedRiskRead Replies (1) of 81568
 
Dr. Bob: "Our patient is getting better."

Dr. CR: "I agree, but I don't think we can take him off life support. And we aren't addressing the cancer yet either."

Right now, the economy is on life support (1% Fed Funds rate for almost a year). At the stated CPI (2.5% over the last 12 months), this is a negative 1.5% real rate. Of course, the Fed has acknowledged that CPI understates inflation in the following article (but we can ignore that for now):
frbatlanta.org

Until we can get the patient off life support (1.5%+ real rates), the patient is in danger of collapsing from other unexpected ailments. But right now I am mostly concerned about the cancer (aka 'The balance sheets'). The twin deficits, corporation debt (especially junk) and consumer debt are all problematical. This debt explosion is the cancer that we are not addressing.

Example: CCC Sickness
forbes.com
'The financing of today will be the bankruptcies of tomorrow," Carl Icahn warned debt investors at a recent Bear Stearns conference.'

So Dr. Bob, it’s great that the patient is looking a little better, but he is still very sick. And it is just June. Be careful running on May numbers in the Fall. This is especially true when we are not addressing the patients other problems (just ignoring them for now).

I am glad things are looking a little better. But I was never concerned about the short term implications of the current poor fiscal policies.
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